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New Quarter, Same Story

Our stock index fell more than 13 percent to a record low for the week ended April 4, as earnings warnings and analyst downgrades continued to pummel some service providers and consulting firms.

Our stock index fell more than 13 percent to a record low for the week ended April 4, as earnings warnings and analyst downgrades continued to pummel some service providers and consulting firms.

Bullish comments from Dell Computer sparked a market rally last Thursday, but the rally came one day after our weekly index closed.

The indexs biggest weekly loser was XO Communications, a broadband services provider, which dropped 44 percent on April 3 following an analyst downgrade. UBS analyst Glen Waldorf raised concerns about the companys $6.2 billion debt load, rapid cashburn rate and ability to raise more funds. XO has about $3 billion on hand, but that may last only until mid-2002, says Waldorf. He lowered the stocks rating two tiers, from a strong buy to a hold, and slashed its 12-month price target 90 percent, from $70 to $9.

Application service provider USinternetworking (USIX) also was downgraded at least two rungs, from a strong buy to market perform. Legg Mason analyst Todd Weller noted that clients for IT services, who are themselves cutting back on orders, are becoming increasingly concerned about the financial stability and stock prices of their vendors. As of midday April 5, USIX was trading at about 60 cents a share.

Further reading

Such low stock prices threaten the listings of some stocks on the Nasdaq.

Xpedior, an Internet consulting firm facing a delisting, recently left voluntarily. Nasdaq halted trading in PSINet shares last week after the company missed a March 31 deadline to file its Q4 earnings report. PSINet said that even if it succeeds in selling off assets and restructuring its debt, it still may file for bankruptcy. The stock hasnt topped $1 per share since March 9.

Organic, another consulting firm facing delisting, may be saved from extinction by becoming part of a new holding compa- ny formed by Omnicom, an ad agency. Omnicom is a major investor in Agency.com, Organic and Razorfish. All three would be part of the new holding company.

Still, many high-tech firms trading in the single digits may not regain lost ground anytime soon. According to Merrill Lynch analyst Thomas Watts, less than 4 percent of technology stocks that fell below $10 a share since 1987 made it back up to $15 or higher within one year.

Also last week, Acxiom shares fell sharply after a Q4 earnings warning.

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